China Miners’ Loss Is BHP’s Gain as Iron Prices Slump 44% – by (Bloomberg News – June 20, 2014)

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Rio Tinto Group and BHP Billiton Ltd. (BHP), two of the world’s biggest iron ore producers, are benefiting as falling iron ore prices pressure smaller rivals in China to shut down.

The price of iron ore has plunged 44 percent from its February 2013 peak on the back of record output. That’s hurting mining companies in China where 20 percent to 30 percent of mines have closed, according to the China Metallurgical Mining Enterprise Association.

The closures are helping Rio Tinto and BHP which, along with Vale SA (VALE5), already control about two thirds of global seaborne supply from their low-cost mines. About $40 billion a year of iron ore is mined in China, the country that’s also the world’s biggest buyer of the steelmaking component.

“Many smaller mines in China have stopped production due to the falling prices,” said Sarah Wang, a Shanghai-based analyst with Masterlink Securities Corp. “It’s the right time for BHP and Rio to seize the opportunity to boost their market share.”

BHP, the world’s biggest mining company, last month also flagged the closure of some Chinese ore mines.‘ “Most of them are smaller ones, while the bigger ones are also starting to be affected,” Liu Xiaoliang, the association’s general secretary, said in an interview. “Almost 70 percent of the ore processing companies have also closed.”

Bear Market

Iron ore, which entered a bear market in March, this week hit a 21-month low of $89 a dry ton, down from a February 2013 peak of $158.90. Morgan Stanley expects prices to drop as low as $80 in the second half, and will average about $90 next year, according to a June 12 report.

Share prices for the top producers have slipped less than half that, a marked contrast to the last slump when they moved in near-lockstep.

BHP, the world’s third-largest iron producer, lost about 8 percent of its market value from the Feb. 20, 2013, the iron ore price peak, to the June 16 low, and the comparable Australian shares of Rio Tinto, the second biggest, declined 16 percent. Brazil’s Vale, the top iron miner, is down about 27 percent.

Share prices for producers already include ore prices, Deutsche Bank AG analysts led by Paul Young said in a June 16 report. The last time iron ore collapsed, falling 55 percent from Feb. 16, 2011 to Sept. 5, 2012, BHP and Rio Tinto slumped 33 percent and 44 percent.

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